Wednesday, April 16, 2014

Constellation Brands: The Wine, Spirits, and now Beer Giant

You may not know it by name but Constellation Brands, Inc. is a successful wine, beer, and spirits company that has grown quite largely in the recent years.  The company reported a whopping $4.9 billion in revenue for 2014, up 74% from the year before! Why such a strong spurt in growth? Well, specialists say it has much to do with Constellation's acquisition of Grupo Modelo, the maker of Corona and various other Mexican beers.

With brands such as Robert Mondavi, Clos Du Bois, Estancia, Arbor Mist, and Naked Grape, Constellation is definitely a high performer in the wine industry.   What also sets this company apart from other wine companies is the ownership of numerous spirit brands such as Svedka vodka, and Black Velvet whisky.  When Anheuser-Busch InBev tried to acquire Grupo Modelo earlier last year, it was revoked due to an anti-trust law and Constellation got ownership.  This means that Constellation is now able to produce and distribute Corona, Pacifico, and Modelo brands to US consumers. 

However, recently Constellation is getting some negative feedback about its popular beer Corona.  People think they are selling crappy beer with the glorified feeling of being on a nice sunny beach.  Although it is the 5th bestselling beer in America, beer experts tend to feel otherwise:
After 3,200 reviews at RateBeer.com, Corona has a grade of 1.69 out of 10. The Beer Advocate gives Corona an “awful” rating of 55 out of 100 and the following description: “faded aromas of sulphur, faint skunk, mild cooked veggies.”
Last holiday season Corona  "rolled out the same tired old ads" of a palm tree with holiday light. Are people getting sick of the "sand, sun, and lime wedge" image that Corona advertisements portray?
I think that the new ownership of these beer brands should come with a brand new advertising campaign. After all, beer is all about marketing. I do get that Constellation doesn't want to interfere with a campaign that is already profitable.  Perhaps they could jazz up another beer that they distribute, that is of better taste and quality.  It will be interesting to see the campaigns that Constellation sets out this year during the Super Bowl!

 

Friday, April 11, 2014

The Rise of the Fast Casual Restaurant

Next time you’re in a little bit of a rush and don’t want to spend an arm and a leg on lunch, ditch the Mickie D’s drive-thru and head elsewhere. Many Americans, without even knowing it, have been dining at “fast casual” type restaurants for the last couple of years.  Places like Chipotle Mexican Grill and Blaze Pizza are setting the standard for successful fast casual restaurants.  They are casual eateries, where one can feel comfortable eating by oneself and also watch their food being made right in front of them. 
           
Chipotle has made a killing in the last couple of years, seeing as though the company is now worth $16 billion.  This is attributed to a couple factors. Firstly, you can customize your food however you’d like it, and you know that they’ll get it right because you are telling them as they make it.  No one tends to like it when they open up a burrito from Taco Bell and find it smeared with sour cream when they had clearly told the lady no sour cream!

What makes it different and perhaps more appealing than places like In-N-Out, is the fact that you can see all the various toppings and options.  Visually looking at colorful and fresh ingredients is a huge plus.  Seeing is believing, and you best believe that Chipotle and its customers know that already.

When one first holds a ridiculously huge Chipotle burrito, the feeling is pure delight.  Honestly, it makes any other burrito look pathetic.  For around the reasonable price of $6.50, you get major bang for your buck.  Generally, most entrées at sit-down restaurants tend to be a couple bucks more expensive than your typical fast casual entrée. 
           
 Dining in is also a nice experience.  Chipotle employees greet you with smiles while chanting “Welcome to Chipotle!”.  The atmosphere is super cool and modern: plywood and sleek steel furniture, giving it a light and refreshing look.  Anyone would rather be spotting sitting in a Chipotle during a lunch break rather than a Burger King, am I right? Trendiness is a real biggie, and Chipotle has mastered it.

The biggest upside may very well be the fresh, locally produced ingredients that are pledged by most of these eateries. Chipotle calls it “Food With Integrity” – they promise to only use meat and produce that hasn’t been altered by hormones or antibiotics.  Mentioning this on the menu of each of its two thousand and something restaurant really helps boost its reputation.   Nowadays, where everyone seems to be talking about the new “superfood” and why we should be anti-industrialized agriculture, it is important that companies adapt in the form of what they have to offer.  After all, being environmentally and health conscious is a very marketable commodity in today’s society. 

All of these benefits have created a strong sense of consumer loyalty for Chipotle as a fast casual brand.  In fact, some people seem to prefer waiting in the long twenty-minute lines during lunch hour, rather then go to a fast food restaurant.  If they were in a hurry, they could just order on the Chipotle mobile application on their phone and their burrito would be ready to pick up! 
           
Overall, this says a lot about American culture and society.  We are noticing a trend of getting what we want, exactly how we want it, and in the best way possible.   Fast food used to be a large facet of American life, and now we are seeing it slowly diminish and being substituted with better alternatives.  We are constantly striving to do better, whether it’s for our health or the health of our environment. Supporting restaurants like Chipotle indicates the evolving nature of Americans and our diets.



Saturday, April 5, 2014

Why we need a few more Elon Musks around...


He's our 2014 commencement speaker. He's the CEO of Tesla Motors and SpaceX, and the founder of PayPal.  Elon Musk is doing big things.
The native South African taught himself computer programming at age 12 and sold his first video game for $500.  He successfully sold his email payment service PayPal for $1.5 billion to Ebay.  He founded a space exploration company and solely funded its early stages with $100 million of his own fortune.  He turned around Tesla Motors, which is the only electric car company that has had much success, even after ten years of losses on its financial statements.

Why should we care?

SpaceX: Elon Musk wants to take people to space, more people than ever before.  He is nicknamed the "poster child of the commercial space travel revolution".  With government affiliated agencies like NASA contracting most of their work out now because of funding cuts, private companies are now potentially very lucrative.  Musk stated that he wanted to reduce the cost of space travel by a factor of 10, eventually leading to the colonization to Mars.  Musk is a forward thinker and in many interviews states the risks of living in a modern world where anything can go wrong, and creating an "escape" on another planet will prove very useful:
"An asteroid or a super volcano could destroy us, and we face risks the dinosaurs never saw: an engineered virus, inadvertent creation of a micro black hole, catastrophic global warming or some as-yet-unknown technology could spell the end of us. Humankind evolved over millions of years, but in the last sixty years atomic weaponry created the potential to extinguish ourselves. Sooner or later, we must expand life beyond this green and blue ball—or go extinct."
Tesla: We see them around sometimes and its always cool to point them out!  Tesla is making 550 cars per week, but selling them like hot cakes. There is a wait time of up to 6 months for the Tesla Model S.  They are even set to come out with a minivan version in the next year or two, as well as dramatically increasing the amount of supercharger stations across the globe.  This all seems great but Tesla is running into some major roadblocks.  The selling of Tesla is now banned in 5 states because of automobile dealers lobbying in state legislatures to halt the direct-to-customer approach that Tesla uses. It will be interesting to see how this pans out.  Even though Tesla is loses 5 states worth of sales, I think it makes the brand more exclusive and desirable.  People who want the car, and have the money to buy it, still cannot buy it easily!

Hyperloop:  Elon Musk is currently working on a plan to create a aerodynamically absurd transportation system that would theoretically get people from Los Angeles to San Francisco in 30 minutes! The project is estimated to cost $6 billion, and would only use solar power.  Just imagine the possibilities...


Elon Musk, you've done it all by the time you reached 42, and there is still a lot more to look forward to.

Saturday, March 29, 2014

Bridging the G(APPS)

Mobile applications are becoming our future.  With Snapchat, Whatsapp, and Instagram selling for billions of dollars, app designers are starting to see the real values of mobile apps.

What are the benefits of mobile apps? Well, essentially, they take everything we need to do on the internet and make it available on an offline platform.  You just need phone service, and you can wire money to your parents in a different country. You can share pictures and videos instantly with your friend in South America from the convenience of reaching in your pocket.

Whatsapp allows users to communicate with friends anywhere without having to pay expensive cell phone charges.  Facebook recently bought Whatsapp for 19 billion dollars!  I think this was a very smart move considering that Whatsapp was gaining new users faster than people were joining Facebook.  Companies like Facebook are now realizing that everything is moving to a mobile platform, and in order to stay competitive, they have to join in.  Also, you may think that there is an app for everything, but the market for new apps is huge:


According to Forrester Research, innovation in the world of mobile apps is increasing massively. It is expected to be a $38 billion market by 2015. Although we’ve been lead to believe there’s app for almost everything, that couldn’t be further from the truth. Business opportunities associated with apps are just at an infancy. From one end of the spectrum with hyper-personalized, hyper-local and hyper-social apps right through to the enterprise market which alone is well on the way to spending $17 billion deploying apps, the overall market and number of use-cases are booming. Today’s smartphones literally are a blank slate, and we haven’t even begun to see what can be achieved.
 



There you have it folks. It is crazy that an industry that was nonexistent 10 years ago could get so huge. 
Bridging the world’s gap, one app at time.

Trojan Spotlight:
USC’s own students Sidhant Gandhi and Johnny De La Cruz have launched their new app on the Apple Store called Hypetrax.  The app is used for sharing music instantly with friends as well as a platform for artists to showcase their own music.  They have reached the Marshall Venture Seed Competition semi finals in hopes to win a $25,000 cash prize from investors.  You can read their story here via Neon Tommy.






Saturday, March 15, 2014

Can Zara keep its standing as the leader in it's market?

The $9.4 billion dollar brand known as Zara is doing very well in today's market.  The brand, owned by Inditex Group, has over 2000 locations worldwide, and according to Forbes "renowned for its ability to develop a new product and get it to stores within two weeks, while other retailers take six months." While doing some more research, I found that Zara has some unique traits that others don't.

Daniel R. Piette, chairman & CEO of LV Capital once described Zara as “possibly the most innovative and devastating retailer in the world,” What sets Zara apart from other specialty apparel retailers is its focus on having a limited inventory, short supply chain, and authenticity in the European market. Zara produces about 11 thousand styles each year, which adds up to nearly 5 times as many as a comparable retailer would typically produce. They are produced in small batches, keeping things fresh and “in style” at all times. Because of this model, customers shop at Zara an average of 17 times a year, compared to 3 or 4 times for a competitor.

Zara manufactures a greater percentage of its clothes in Spain, Portugal, and Morocco than it does in Asia, giving it the competitive advantage of being able to react exponentially faster to new trends and demand. Although clothes can be manufactured cheaper in China, Bangladesh, and India, Zara seems to treat fashion as a priority to cost.  Obviously, it has worked out quite well for them. Because of Zara's business model, the brand outperformed others such as Gap and H&M in the recent economic downtown. 

Can Zara keep this market lead? I am skeptical.  With the newer generation dictating what they want to have in style, all brands will most likely be wary of Zara's strategy and will copy it.  And with the evolving convenience of technology, brands may emerge like Zara that are always changing their styles, but can quickly get the new clothes made in China.

Saturday, March 8, 2014

The Argument for Outsourcing

Outsourcing is not a new idea. Everyone’s heard it before. Most often than not the term tends to have a negative connotation associated with it.  In this day and age where companies are continually striving for efficiency in operations and cost, it is not uncommon to look into overseas alternatives.  In this essay we will explore the history of outsourcing and refer to many economists to finally decide if it’s good for our society or not.

Why do companies expand operations to other foreign countries? There can be many reasons; the labor is not as costly, companies can investigate new markets, they can operate 24 hours a day, and they can pick from a different talent pool.  They can also do so for tax benefits, if the country’s corporate tax rate is lesser than what it is in the states.  However, we must not confuse this with inversion.  Inversion is when a firm will simply change its mailing address of its headquarters to another country in order to escape certain tax regulations.  This is different from outsourcing because it doesn't involve any core business operations in the country and it has no impact on jobs.


The image above shows the average hourly wage of entry-level accountants in different countries.  As you can see, firms can save a large amount if they went offshore to China or India with their accounting needs. 

Accounting is not the only area in which companies go abroad in.  Call center and recruitment facilities are now huge in India.  Because these are business functions that require a large amount of employees at once, they are perfect to outsource.  Gurgaon, Bangalore, and Hyderabad are all cities that have been swept up by large corporations and transformed into customer service and delivery mass hubs.  When you are on the phone with customer support, you almost always will hear an Indian accent on the other end of the line.  This can be frustrating to many Americans, not only because it’s hard to understand the accent, but also because some think that these workers “stole” jobs that belong to Americans.

Let me give some background on that last point.  In order to do this we will have to understand how the term “outsourcing” came into our world and became popular.  It dates back to the 2004 presidential campaign, when John Kerry and President George W. Bush both contributed to fueling the fierce debate about outsourcing.  On January 7, 2004, Senator Charles Schumer and Paul Craig Roberts published an Op-Ed in the New York Times and led a panel discussion on the modern instances of free trade.  They argued that free trade has become a thing of the past because of changes in our now global economy. 

Now, what does this have to do with outsourcing? Well, economists unanimously view business abroad as a form on international trade.  Trade almost always creates winners and losers, but that's the nature of it.  It produces winners and losers but also “involves gains to overall productivity and incomes” according to Gregory Mankiw, former CEA chairman.   This panel discussion sparked a new wave of interest to the activity known as outsourcing. 

In February of 2004, the White House released its Economic Report of the President and held a press conference for it.  Of course, the topic of the hour seemed to be outsourcing.  When asked for a comment on the subject, the chairman responded with the following:

I think outsourcing is a growing phenomenon, but it's something that we should realize is probably a plus for the economy in the long run. Economists have talked for years about trade, free international trade, being a positive for economies around the world, both at home and abroad. This is something that is universally believed by economists. The President believes this. He talks about opening up markets abroad for American products being one of his most important economic priorities. And we saw discussions this weekend of the Australia agreement. So it's a very important priority.
When we talk about outsourcing, outsourcing is just a new way of doing international trade. We're very used to goods being produced abroad and being shipped here on ships or planes. What we're not used to is services being produced abroad and being sent here over the Internet or telephone wires. But does it matter from an economic standpoint whether values of items produced abroad come on planes and ships or over fiber optic cables? Well, no, the economics is basically the same. More things are tradable than were tradable in the past, and that's a good thing. That doesn't mean there's not dislocations; trade always means there's dislocations. And we need to help workers find jobs and make sure to create jobs here. But we shouldn't retreat from the basic principles of free trade. Outsourcing is the latest manifestation of the gains from trade that economists have talked about at least since Adam Smith.

After the report and the panel discussion, the Los Angeles Times was first of many to publish a twisted version of events with the headline “Bush Supports Shift of Jobs Overseas”, while the Washington Post published the article “Bush Offers Positive Outlook on Jobs, with 3% Growth Rate” and chose to highlight other aspects of the ERP report.  But it was the words of the Los Angeles Times article that spread like wildfire in America. The John Kerry campaign jumped on it and slammed President Bush with accusations of supporting cruel multinational corporations who take their jobs to other countries.  Because of the disappointing employment rate, the term “outsourcing” soon became synonymous with “job loss”.  

From the Op-Ed article to the ERP report to the Los Angeles Times article; it all seems like a huge misunderstanding to me.  I mean “offshoring” and “outsourcing” were still pretty new terms back then, and the media could have just amplified the confusion around them.  It could have to do with the wording of the panel discussion answer for the ERP.  The chairman started with the argument for outsourcing, but ended on a somber note- that there will be displacements of jobs.  Perhaps the correct way to go about this would be to get the negative point out of the way first and then to focus on the positives.  This also helps to acknowledge and satisfy the skeptics’ first thoughts but then to try and change those very thoughts using positive arguments.  But of course, the media will always try to stir up a controversial story especially one regarding White House affairs.

Soon after, John Kerry came up with a proposal to handle outsourcing, which would be implemented if he were elected president.  It proposed that US corporations who do work abroad would no longer be able to defer the corporate tax they would have to pay the government.  However, this may hurt the firms in a global environment because they will have to compete with foreign firms who may pay a lesser tax, or they are able to defer payment.  The stricter tax codes seem as though they may actually influence corporations to engage in an inversion!  We don’t want inversions because then we can’t include the earnings in our GDP, in turn, making our country look worse off.

On March 10, 2004 President Bush acknowledged recent concerns about offshoring and proceeded to attack the politicians whose wish was “to build a wall around this country and to isolate America from the rest of the world.” Bush had to continually emphasize this very idea, since the issue of outsourcing remained a major talking point all the way up to the November election. 

Bush was right; international trade needs to be protected and upheld as important to our economy.  Based on empirical evidence, increased employment abroad correlates with increased employment at the US location.  Although some jobs may be lost to outsourcing, the majority of jobs now days are actually lost to automation.  The real problem is with our mid-level jobs.  With vast technology innovations becoming mainstream, there is a lesser need for low to mid level employees.  It’s pretty obvious, why should firms pay workers a salary when they can get the job done by automation for a fraction of the cost?  Harvard economics professor Gregory Mankiw thinks that prohibiting outsourcing will lower our standard of living:

Economists understand that international trade is not, fundamentally, about job creation. An open economy can just as easily be fully employed as an autarkic one, and by realizing the gain from specialization and trade, it will have higher real wages and living standards. Moreover, exports and imports go hand in hand, so when a nation blocks imports, real exchange rates will adjust so it exports less as well. These are subtle lessons, however, and not easily explained in a short sound bite.

The thing is, it’s hard to tell if the jobs overseas are replacing jobs domestically.  If a company is doing some business in a different country, it cannot be assumed that they are outsourcing the work.  They could, in fact, be attempting to meet consumer demand via other avenues.  The only way to tell would be if companies were forced to tell the reason for each layoff.  This is where the mass layoff data comes in, and it very well may be the only systematical way to tell whether workers are being displaced because of outsourcing endeavors or not.

The Bureau of Labor Statistics confirmed in its report of Mass Layoff data that outsourcing work overseas was not a major reason behind mass layoffs. In fact, when analyzing the data, outsourcing appeared to be negligible and insignificant. 

In an academic report prepared by Desai, Foley, and Hines, international operations by American countries is said to “complement rather than substitute for domestic activity by the same firms”.  This makes sense because as companies explore foreign markets, they most likely will want to do business there, which will increase the need for domestic assistance and monitoring.  Mataloni, Hanson, and Slaughter also produced a report which states the same thing : “foreign activity does not crowd out domestic; the reverse is true. “

The idea of outsourcing isn’t at all a bad one, but it seemed to possess such a negative and twisted result.  Like I mentioned above, communication of new ideas need to be clarified and projected in a careful manner.  I don’t know if outsourcing would have gotten the attention it did if the chairman of the ERP did not end on the poor note of Americans losing jobs.  When firms are questioned why they are sending some processes overseas while domestic unemployment is high, they need to respond strategically.  As discussed before, they need to first acknowledge the fact that some jobs may be lost, and then explain why it would be better as a whole for the company.  Some tips would be to use the word “specialized” instead of “cheaper”, and “meeting customer’s needs” instead of “cost cutting”.  

The benefits of outsourcing are countless.  Not only are companies able to streamline and enhance their operations, they can change the lives of workers who live in under-developed towns.  I myself have visited to Gurgaon, India, a major tech hub for US multinationals, and have witnessed the poverty and scarcity there.  The American companies have built office buildings and various centers for cities like Gurgaon.  International trade is simply a win/win situation and I think our government needs to keep that in mind.